Regulatory Gaps in Registered Unrecognised Political Parties

Regulatory Gaps in Registered Unrecognised Political Parties

#GS-2 #Indian Polity & Constitution #Constitutional Bodies #Governance & Social Justice #Regulatory Bodies #Current Events #National #Gujarat #Electoral Reforms #Political Funding

Key takeaways

  • Six Gujarat-based unrecognised political parties collected Rs 1,700 crore in FY 2023-24 while fielding just 15 candidates.
  • Over 70% of India's 2,800 registered unrecognised political parties remained electorally inactive in the 2024 Lok Sabha elections.
  • Under the Indian National Congress (2002) Supreme Court judgment, the Election Commission of India lacks statutory power to de-register non-compliant political parties.
  • Recommendations suggest amending Section 13A of the Income Tax Act to link 100% tax exemptions with a minimum vote threshold.

Why in News

  • An investigation revealed that six Gujarat-based registered unrecognised political parties received around Rs 1,700 crore in donations during FY 2023-24.
  • These six parties fielded only 15 candidates combined in the 2024 Lok Sabha elections, raising serious concerns about political funding loopholes.

What are Registered Unrecognised Political Parties?

  • Citizens can register any association as a political party with the Election Commission of India (ECI) under Section 29A of the Representation of the People Act, 1951.
  • If a party fails to achieve the required vote share or seat share under the Election Symbols (Reservation and Allotment) Order, 1968, it is designated as a Registered Unrecognised Political Party (RUPP).

Statutory Benefits and Obligations

  • RUPPs receive a 100% income tax exemption on voluntary contributions under Section 13A of the Income Tax Act.
  • These parties get a common election symbol and can nominate 20 star campaigners whose travel costs do not add to candidate spending limits.
  • RUPPs must submit contribution reports for donations over Rs 20,000 under Section 29C of the RP Act, accept donations above Rs 2,000 only through banking channels, and submit audited annual accounts.

Key Data and Structural Realities

  • India had more than 2,800 RUPPs by mid-2026, but only about 750 contested the 2024 Lok Sabha elections, leaving over 70% inactive.
  • Six Gujarat RUPPs collected Rs 1,700 crore in FY 2023-24, while five national parties fielding 893 candidates received Rs 1,480 crore. One RUPP alone collected Rs 620 crore.
  • Data from ADR shows that only 26-27% of RUPPs submit their annual audit reports on time, creating severe financial opacity.
  • Although the ECI delisted more than 800 non-compliant entities, high-donation RUPPs avoided action by fielding a few candidates.

Reasons for Continued Activity Despite Non-Compliance

  • The Representation of the People Act, 1951 allows party registration under Section 29A but gives the ECI no explicit power to de-register inactive or non-compliant parties.
  • In the Indian National Congress v. Institute of Social Welfare (2002) case, the Supreme Court held that the ECI cannot cancel a party's registration except under three extreme conditions.
  • The Supreme Court permitted de-registration only if registration involved fraud, if the party stops allegiance to the Constitution, or if banned under the Unlawful Activities (Prevention) Act.
  • Administrative delisting by the ECI removes parties from official lists, but it does not legally dissolve the entity or strip its tax benefits.
  • Political outfits use token participation by fielding dummy candidates to fulfill election rules and avoid regulatory action.

Challenges

  • Donors use unrecognised parties to claim 100% tax deductions under Section 80GGC of the Income Tax Act, cycling funds back as unaccounted cash.
  • Around 73% of RUPPs do not publish balance sheets, preventing oversight agencies from tracking funds.
  • Unscrupulous groups register political parties purely to trade election symbols, star campaigner passes, or subsidized office leases.

Way Forward

  • Parliament should amend Section 29A of the RP Act as recommended by the Law Commission 255th Report and the ECI 2016 recommendations to grant explicit de-registration powers.
  • Government should amend Section 13A of the Income Tax Act to mandate a minimum vote threshold for tax exemption benefits.
  • The ECI filing portal should integrate automatically with the Central Board of Direct Taxes (CBDT) and the Financial Intelligence Unit (FIU-IND) for real-time data sharing.
  • Parties crossing specific donation levels must undergo mandatory audits by CAG-empanelled Chartered Accountants instead of self-selected private auditors.
  • Policy should lower the anonymous cash donation limit from Rs 2,000 to zero, requiring all political contributions through verified digital channels or electoral trusts.

Conclusion

  • Weak legal powers allow inactive parties to misuse tax benefits and hide financial transactions.
  • Giving de-registration authority to the ECI, setting vote thresholds for tax benefits, and sharing financial intelligence will protect electoral integrity.